Deal talk boosts Dish and DirecTV shares

Reports that Charlie Ergen had approached DirecTV chief

Shares in Dish Network and DirecTV, the US satellite TV operators, rose sharply on Wednesday after reports that Charlie Ergen, Dish’s chairman, had approached Mike White, DirecTV chief executive, last month suggesting a merger.

The initial report by Bloomberg, which cited people with knowledge of the matter, was not confirmed by either company. Dish’s shares closed more than 6 per cent higher at $62.09, while DirecTV gained 5.7 per cent to $77.34.

Analysts noted that Mr Ergen might be hoping that in the wake of the proposed $42bn Comcast acquisition of Time Warner Cable, US regulators might be more inclined to accept a merger between satellite TV operators than they were 12 years ago when a similar proposal was blocked.

A combined Dish-DirecTV would have about 40m subscribers, about 30 per cent more than Comcast-Time Warner Cable after expected divestitures.

While acknowledging that a deal between Dish and DirecTV could yield “staggeringly large” synergies, Craig Moffett of MoffettNathanson warned in a note to investors late on Wednesday that “the odds of successfully completing a merger must be deemed relatively low”.

Mr Moffett and other analysts argue that while Comcast’s acquisition of Time Warner Cable could still face regulatory hurdles, “it doesn’t raise any of the same horizontal concentration issues as DirecTV/Dish Network”.

The US justice department and the Federal Communications Commission are expected to focus on whether Comcast’s scale in broadband and/or video creates undue market power in negotiations with programmers and content creators. However, the number of competitors would not be reduced because geographically there is limited overlap.

In contrast, Mr Moffett argues, “a DirecTV/Dish Network merger would reduce the number of pay TV competitors in every market in the US”.

“From where we stand, the odds of a successful (satellite TV) merger, look very, very low,” he said.

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